There are many things in the news lately that worry millions of homeowners: hurricanes, floods, earthquakes, even possible volcanic eruptions. According to the California Department of Insurance, after the fire storm season of 2003 in southern California, it was found that one-third of the victims were underinsured, and another one-third did not have any homeowner’s insurance at all.

Additionally, a Los Angeles-based company, Marshall & Swift/Boeckh, recently estimated that approximately 64 percent of American homes are underinsured by an average of 27 percent, and some homes are underinsured by more than 60 percent!

It is probable that homeowners would insure their houses appropriately if they knew what “appropriately” means. For instance, many homeowners do not know that since the late 1990s, they have to specifically ask for a “guaranteed replacement policy,” or the insurer may only issue an extended replacement policy, which sets out payout limits, plus an additional 20 to 25 percent payout, which may still not be enough to cover the cost of rebuilding a home that has been destroyed in light of today’s increased costs of building.

The Insurance Information Institute (III) outlines four major events that should spurn a review of your policy:

1. Check your coverage when it’s time to renew your policy. Some websites offer replacement cost calculators to help you evaluate the amount of coverage you need. Your insurance agent will probably also be more than willing to help you estimate replacement cost of your home and its contents. Also, take this opportunity to shop around for the best rate, seek specific coverage for natural disasters, inquire about available discounts, and ask your agent about any policy changes.
2. When making major changes, consider changing your insurance as well. If you make the decision to make home improvements or renovations or build on to your house, talk to your insurance agent about the necessity of increasing your coverage to cover the added property value, additional square footage, additional possessions and the value of the purchase.
3. If home improvements are for safety reasons, you may qualify for a discount. Choosing to add improvements that make your home safer, and less likely to experience a claim, such as burglar alarms, sprinkler systems or fire alarms or upgrading your plumbing, heating or electrical systems, may allow you to qualify for one of your insurance company’s discounts.
4. Life changes may require insurance changes. Significant life changes such as marriages, divorces, births or adoptions, children leaving home or returning home or new residents (such as an aging parent) mean that what’s in your home is changing as well. After such an event, think about whether possessions have increased or decreased and talk to your agent about whether your coverage should as well.
   

Finally, it is always a good idea to take your insurance policy seriously. Keep your policy in a safe place, ideally away from home (such as a safe deposit box). Also store it with an inventory of your possessions and, if possible, purchase receipts for your possessions. An easy way to provide strong evidence of your possessions and their need for replacement in case of a claim would be to videotape or photograph everything from your television to your baseball card collection, and keep the tape or photographs safe as well.

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